Although Bitcoin launched only ten years ago with an agenda to create a new economy, today, some would say that the world of cryptocurrencies seems to fixate on gaining access to the mainstream. News that the UK may be looking to introduce a regulatory regime later this year and discussions taking place about the future of cryptocurrencies at the top-level World Economic Forum in Davos, Switzerland point towards events that may be coming soon.
CFD traders who focus on crypto markets have long known that much of the volatility involved in the sector is due in part to a lack of regulation and structure. With the UK Government now looking at making moves and the international community discussing its options, traders are likely to wonder what will happen to crypto in the coming year.
Value of the sector
This week, on the second day of the World Economic Forum, a panel called “Building a Sustainable Crypto-Architecture” took place. Harvard University Professor of Economics Kenneth Rogoff said that regulators think that there is not really much value going on in cryptocurrency transactions, and they are waiting to see how things develop.
Rogoff spoke on the panel about the lack of regulation surrounding the world of cryptocurrency and said that much of this is due to transactions not yet hitting a certain level.
“Governments can’t tolerate large transactions […] But right now, regulation has not come yet. The US has tiptoed into it, everyone else is just starting to talk about it,” Rogoff said.
He added: “This issue about evading capital controls – if it’s really small, the governments aren’t going to do much about it, but if it gets too expensive, [the governments] aren’t going to like it, and they can find ways to stop you from spending [cryptocurrencies].”
“Bitcoin will be worth a tiny fraction of what it is now if we’re headed out ten years from now…I would see USD 100 as being a lot more likely than USD 100,000 ten years from now,” Rogoff predicted. He argued that crypto regulations and an increase in the interest that tax authorities will pay the sector will lead to a situation where the currency will diminish greatly in value.
Trust in the concept
Jeremy Allaire, co-founder and CEO of digital currency company Circle, believes that cryptocurrencies’ bad reputation for being involved in illegal activities is wrong and damaging to the sector’s prospects.
“The biggest financial crime we have is with US dollars – it’s a two trillion market of crime. [Out of all] the Central Bank-printed hundred-dollar bills, half of them are sent overseas. I wonder who’s demanding those,” Allaire said,
“Crypto is still too small, and the big guns are focused on the money that the [Federal Reserve System] is giving out to countries around the world, and that’s where the problem is,” he explained.
Another of Rogoff’s concerns is that complete decentralisation could lead to growing dangers for the world economy. He said: “If someone wants to spend billions of dollars to bring down the international financial system, there are ways to do that [using crypto], and then who do you call? We’ve decentralised [everything].”
Crypto regulation in the UK
Meanwhile, there are signs that the UK may be moving towards a position of regulating cryptocurrencies. The Financial Conduct Authority (FCA) said in an official statement that it will consult “later this year” on a ban on derivatives that are “linked to certain types of cryptoassets.”
The regulatory body added that clarification is necessary as to which elements of the “cryptoasset” sector “fall under FCA regulation.” It went on to explain that it wants to help companies active in the sector to have a “better understanding of whether they need to be authorised” to “ensure they are compliant and have appropriate consumer safeguards in place.” At present, 18 unnamed companies “involved in the sale of cryptocurrencies” are under investigation by the FCA on suspicion of irregularities.
In 2018, the FCA took part in a taskforce project that reported on the need for regulation in the “cryptoasset” sector. The UK Treasury and the Bank of England also participated, and in October, the taskforce decided that regulators should consult on “implementing one of the most comprehensive responses globally to the use of cryptoassets for illicit activity.”
The first steps could include “a potential prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets (for example, exchange tokens), including CFDs, options, futures and transferable securities,” it suggested.
Long game
As governments around the world increasingly look at how the crypto sector could become subject to regulation and control, the implications for CFD traders and crypto forex markets could be huge. Two areas are likely to be under the spotlight: taxation and regulation surrounding offerings of services or products to the public.
However, the other side of this digital coin could be good news for the sector, as increased regulation could raise confidence and awareness among the general public, leading to greater adoption and use. Once the authorities safely oversee cryptocurrencies, it is likely that their popularity will enter a whole new phase of growth.